Interest free credit - why is interest free credit so good?
We've written about interest rates quite a lot around this site, and always said
that you should make sure the interest rates should be as low as possible. But, we've
suddenly had a thought, not everybody will know what interest rates mean; and how
this could affect the cost of your purchase. Well, we'll put that right now, and explain
what interest rates are, and how they affect the cost of your purchase.
What is an "interest rate"
When you purchase your product - whether with a loan, or with a "pay weekly" type purchase,
you're getting credit from somebody. Anytime you get your product, and pay for it after
afterwards, it's credit. When somebody gives you credit, they tend to want something back for it. Despite
what they may say, they're in it for the money - and it's your money they're after. What they get back from you
is interest. This interest is the reason they offer you credit.
Let me give you an example. Assume you want a new laptop, but you can't afford one now - but your children need
one for school. What do you do? Well, one option is to nip down to somewhere which offers "buy now, pay later" type deals.
Somewhere such as Bright House. You get to take away your laptop now, but the rub is you end up paying 30% interest
because Bright House have given you the credit. What does this mean, how much more am I going to pay....
How much more is this interest rate going to cost me?
Carrying on with the previous example; you've got your laptop, and you've got it for £500. But you have
got to pay 30% interest on the credit. So how much will it cost me. As a rule of thumb, you take the amount you borrowed (£500 for the laptop). You then
you divide the interest rate by 10. Sounds complicated, but all you do is stick "0." in front of the number. So 30% comes 0.30. You then multiply
the amount you paid for your laptop by the interest rate (with the "0." stuck to the front). The calculation should look like this...
500 x 0.30 = 150
So, the amount you will be charged for the credit is £150. And that assumes you're going to pay the amount off in a year. Interest rates
are how much you get charged per year, so if your credit goes over a year, you'll pay even more.
So interest rates are bad then?
We're not necessarily saying that you shouldn't get credit, and pay high interest rates. Sometimes you may need to do this
to get that laptop. What we're saying is, be careful. And be aware of how the interest rate can add to the cost of your product.
Interest free can really help too
| All these catalogues offer interest free credit |
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As we've said, interest rates can really add to the cost of your laptop - or whatever product you're choosing to purchase. But there
is always another way, it is possible to get 0% interest rate (or interest free credit, as it's known). many catalogues will offer
you interest free credit, with some even offering you the ability to not pay a penny for the next 12 months. If you fancy some of that interest
free credit, have a little look at one of these catalogues:
Very.co.uk,
Littlewoods and
Marshall Ward, all of them can offer interest free credit. It maybe that you can't get interest free credit with
any of these catalogues, but you might be able to get a cheaper interest rate than shopping at some "pay weekly" shops. I know
interest rates can be a little dull. But it's worth spending a bit of time looking for the best rate, so you get things that little
bit cheaper.
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